After months of delays in carrying out the nation's public-sector reforms, the Spanish government has put the finishing touches on its reforms and is prepared to publicize their results and satisfy the EU. Rajoy's strategy for unveiling the reforms matches his general approach to politics: let others solve your problems.
Rajoy wants quick answers for three issues. First, small- and medium-sized businesses desperately need credit. This is the Prime Minister's main focus right now. The mechanisms and credit lines that have been offered to these businesses so far are not turning out as planned. For example, 22 billion euros were channeled through the Official Credit Institute (ICO is the Spanish abbreviation). These funds financed small businesses and paid off service providers who were owed money for past work.
Rajoy is struggling because the ECB could make it easier for small- and medium-sized businesses to get credit, which could keep the risk premium from jumping up. The second issue is an employment plan for young workers. The third issue is providing access to the MEDE.
If the euro group agrees to provide financial firms access to the MEDE tomorrow, Spain could end up with 40 billion euros for its banks. If more money is needed, it will come from the MEDE without fattening the national debt. European institutions will make decisions about these issues within the next several days. Whatever happens, the aid won't be free.
Rajoy does not want to raise the VAT or deepen labor reforms. It isn?t clear what he wants to do with pensions either. So what will he do? He?ll likely speed up public sector reforms and trust that the EU can deal with the other problems. But how long will the EU maintain its trust in Rajoy?
